Tax Amnesty for India’s Tax Offenders

January 26, 2011 International Tax CooperationTaxation in India

Pranab MukherjeeThe Finance Minister of India has announced that a tax amnesty could be initiated in the near future, with the aim of bringing back capital hidden in offshore accounts.

On January 25th the Finance Minister of India Pranab Mukherjee indicated at a press conference held in New Dehli that the Government was not averse to the idea of initiating a tax amnesty for tax offenders to declare their illicit financial actions in return for reduced penalties. The announcement was part of the Government’s new push against tax evasion and illicit capital flows, which includes the establishment of new committee to investigate the realities of capital outflows from India.

Upon valuing the extent of illicit capital flows from India, the committee will be charged with exploring potential remedies to the situation and recommending actions to the government. The newly established committee is free to address the issues that they perceive would be the most effective for India, but the Minister has revealed that the government has already expressed interest in an investigation into the feasibility and potential structure of a tax amnesty which may be instated in the near future. Pranab Mukherjee conceded that a tax amnesty will be a controversial topic in India, as some citizens will potentially see it as hurting honest taxpayers and unfairly easing the penalties for tax offenders. The Minister continued, saying that despite the perceived unfairness of an amnesty, it has the potential to provide great tax revenues for India.

The Minister also outlined the government’s new approach to fighting illicit capital flows. He stated that the tax authorities would take a concise approach to fighting illicit outflows, consisting of efforts to create further appropriate legislative frameworks to eradicate capital flight; the establishment of public institutions to deal with illicit fund flow; the set up of training programs to explain tax compliance requirements to workers in the taxation and financial industries; and India attempting to take greater part in the international fight against illicit capital flows.

Photo by World Economic Forum